VantagePoint
Internal Affairs Doctrine In VantagePoint Venture Partners v. Examen, Inc., 871 A.2d 1108 (Del. 2005), Examen, Inc. asked the Delaware Supreme Court to affirm the Court of Chancery’s application of the internal affairs doctrine to resolve a conflict of law. The court affirmed the decision, holding that except in the rarest circumstances, the internal affairs doctrine is a constitutional mandate. *Examen won a race to the courthouse by filing a complaint in the Court of Chancery before VantagePoint filed in California. *At stake was the influence the preferred stockholders held over a proposed merger. *Examen sought a declaratory judgment that Delaware law was controlling on the certificate of designation of its Series A preferred stock. Under Delaware law, Examen’s certificate of incorporation required the majority of issued and outstanding shares “voting as a single class” to approve a merger. *VantagePoint, which held 83 percent of Examen’s outstanding Class A preferred stock, sought a declaration from California that Examen was a quasi-California corporation under section 2115 of the California Corporations Code. Under that section, a corporation is a quasi-California corporation if more than 50 percent of its shareholders have a California residence, and it does more than 50 percent of its business in California, as measured by a formula weighing assets, sales and payroll factors. If California law applied, section 1201(a) of the California Corporations Code entitled the Class A preferred stockholders to participate in a separate class vote, effectively affording veto rights to the preferred stockholders on the proposed merger. *The California Superior Court stayed its action pending a ruling in Delaware. Process *The Court of Chancery recognized the conflict between Delaware and California law, and applied Delaware’s choice of law rule — the internal affairs doctrine — to resolve the dispute. *On appeal, VantagePoint argued that the Court of Chancery wrongly concluded that the issue presented was a choice of law question, when it actually was constitutional in nature. Decision by the Delaware Supreme Court *The internal affairs doctrine was not just a principle in the conflicts of law, but also includes constitutional principles of due process under the Fourteenth Amendment, and implicates the Commerce Clause. The internal affairs doctrine was applicable unless “the law of the state of incorporation is inconsistent with a national policy on foreign or interstate commerce,” the court ruled. *The court noted - it was “well established that only the law of the state of incorporation governs and determines issues relating to a corporation’s internal affairs,” (Relying on CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69 (1987) ). **The court added that the “certainty and predictability” provided by the doctrine “protects the justified expectations of the parties with interests in the corporation.” **Finally, addressing the factual nature of when California law would apply under section 2115 of the California Corporation Code, the court explained that “to require a factual determination to decide which of two conflicting state laws governs the internal affairs of a corporation at any point in time, completely contravenes the importance of stability within inter-corporate relations that the U.S. Supreme Court recognized in CTS” (citing McDermott Inc. v. Lewis, 531 A.2d 206, 216 (Del. 1987)).